Funko Seeks Just-In-Time Inventory Deals with Retailers

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Funko is striking just-in-time inventory agreements with some retailers, in an effort to ensure that it maintains the agility to keep its hottest-selling products on retail shelves, CEO Brian Mariotti told analysts.

In reaching just-in-time-agreements, Funko is shifting “some of the inventory risk” to its own balance sheet. “We have seen an increase in demand, our retailers want to be leaner and it (just-in-time) allows for great flexibility to insure that that product that remains on the shelves is more relevant and consistent,” Mariotti said. “Overall the retailers that report to us are seeing a cleaner channel” with inventory levels having decreased by “double digit” percentages from a year ago.

There are other operational issues. Pres. Andrew Perlmutter recently met with Walmart to “better get the product out of the back room and onto the shelves,” Mariotti said. “There is concern” when store shelves have a low number of products “because we are shipping on week to week basis and we want to see our shelves packed. We are working, not just with Walmart, but all of our retailers, about getting product out of the back and onto the shelves.”

Funko says it can turn products around in about 70 days and recently started taking pre-orders for figures based on the Oscar-winning film, The Shape of Water, Mariotti said. It also recently ventured outside entertainment with a two-pack featuring General Mills’ Cap’n Crunch character and his nemesis Jean Lafoote.

At the same time, it wants to increase its number of master toy licensing agreements beyond the current roster of animated fantasy TV series Trollhunters, and videogames “Five Nights at Freddy’s” and “Cuphead.” Funko also is entering new merchandise categories, such die cast, with two-inch “Five Nights at Freddy’s” figures that retail for $5. “We are trying to find price points that haven’t been addressed and where we can do damage at retail,” Mariotti said. It also is readying “Savage World” action figures for the fall starting with DC Comics, ThunderCats and Mortal Kombat.

Funko’s net income dropped 41.4% to $9.2 million in Q4 ended Dec. 31, amid rising costs tied to its acquisitions of Loungefly, Underground Toys and film studio A Large Evil Corp., which has been renamed Funko Animation Studios.

Revenue rose 28% to $169.5 million led by strong sales of products connected to “Overwatch,” “Five Nights at Freddy’s” and Cartoon Network’s “Rick and Morty.” About 45% of Funko’s sales came from “evergreen” properties, with classic Star Wars figures outselling those tied to Star Wars: The Last Jedi, which was released in December, Mariotti said.

The number of “active” properties that Funko sold in Q4 jumped to 435, up from 337 a year earlier, with the average sales per property flat with a year ago at $400,000, Funko said. Inventory rose to $84 million from $44 million a year ago, about 70% of which was tied to the acquisitions of Underground and Loungefly. Funko is opening a new logistics center in Europe later this year as it bids to increase sales in international markets.